Strategic Planning Process

Strategic Management - is the process through which

organizations analyze and learn from their internal and
external environments, establish strategic directions,
create strategies, all in an effort to satisfy key
organizational constituencies, which are
called STAKEHOLDERS.
A simple model of the strategic management process is
illustrated below. The model simply represents a useful
sequence in which to discuss the central topics of strategic
management. For example, while the activities may occur
in the order specified in the model, especially if a firm is
engaging in a formal strategic planning program, they may
also be carried out in some other order or simultaneously.

EXTERNAL AND INTERNAL ANALYSIS

¢ External environment analysis, involves evaluation of
the broad and task environments to determine trends,
threats, and opportunities and to provide a foundation for
strategic direction. The broad environment consists of
domestics and global environmental forces such as socio-
cultural, technological, political, and economic trends. The
task environment consists of external stakeholders.
External stakeholders are groups or individual outside the
organization that are significantly influenced by or have a
major impact on the organization.
¢ Internal stakeholders, which include managers,
employees, and the owners and their representatives (e.g.,
board of directors), also have a stake in the outcomes of
the organizations. A fully developed internal analysis also
includes a broader evaluation of all the organization’s
resources and capabilities to determine strengths,
weaknesses, and opportunities for competitive advantage,
and to identify organizational vulnerabilities that should be
corrected.
External environment analysis, involves evaluation of the
broad and task environments to determine trends, threats,
and opportunities and to provide a foundation for strategic
direction. The broad environment consists of domestics
and global environmental forces such as socio-cultural,
technological, political, and economic trends. Factors to be
considered for each of the forces are as follows.

Political:

 Political stability
 Risk of military invasion
 Trade regulations & tariffs
 Anti-trust laws
 Pricing regulations
 Taxation - tax rates and incentives
 Wage legislation - minimum wage and overtime
 Work week
 Mandatory employee benefits
 Industrial safety regulations
 Product labeling requirements
Economic:

 Type of economic system in countries of operation

 Exchange rates & stability of host country currency
 Efficiency of financial markets
 Skill level of workforce
 Labor costs
 Business cycle stage (e.g. prosperity, recession,
recovery)
 Economic growth rate
 Unemployment rate
 Inflation rate
 Interest rates

Social:

 Demographics
 Class structure
 Education
 Culture (gender roles, etc.)
 Entrepreneurial spirit
 Attitudes (health, environmental consciousness, etc.)
 Leisure interests
 Recent technological developments

Technological:

 Technology's impact on product offering

 Impact on cost structure
  Rate of technological diffusion

The task environment consists of external

stakeholders. External stakeholders are groups or
individual outside the organization that are significantly
influenced by or have a major impact on the organization.
Examples of external stakeholders are the following:

 Suppliers
 Customers
 Competitors
 Government agencies and administrators
 Local communities
 Financial intermediaries
 Unions

People who make up the internal part of the organization

are called internal stakeholders which include managers,
employees, and the owners and their representatives (e.g.
board of directors)
The internal analysis is a comprehensive evaluation of the
internal environment's potential strengths and weaknesses.
Factors should be evaluated across the organization in
areas such as:

 Company image and culture

 Organizational structure
 Access to natural resources
 Operational efficiency and capacity
  Brand awareness
 Market share
 Financial resources

Strategic Direction - pertains to the longer-term goals

and objectives of the organization. At more fundamental
level, strategic direction defines the purposes for which an
organization exists and operates. This direction is often
contained in a mission statement. Unlike short-term goals
strategies, the mission is an enduring part of planning
processes within the organization.
Mission
A company's mission is its reason for being. The mission
often is expressed in the form of a mission statement,
which conveys a sense of purpose to employees and
projects a company image to customers. In the strategy
formulation process, the mission statement sets the mood
of where the company should go.
Vision
Defines the desired or intended future state of an
organization or enterprise in terms of its fundamental
objective. Vision is a long term view, sometimes describing
how the organization would like the world in which it
operates to be.
Goals
Goals are desired states of affairs or preferred results that
organizations attempt to realize and achieve.
Objectives
Objectives are concrete goals that the organization seeks
to reach, for example, an earnings growth target. The
objectives should be challenging but achievable. They also
should be measurable so that the company can monitor its
progress and make corrections as needed
A well established strategic direction provides guidance to
the managers and employees who are largely responsible
for carrying our as well as a greater understanding of the
organization for the external stakeholders with whom the
organization interacts

Business and Corporate Strategy Formulation - A

strategy is an organizational plan of action that is intended
to move an organization toward the achievement of its
shorter-term goals and ultimately, toward the achievement
of its fundamental purposes. Strategy formulation is often
divided into three types-corporate, businesses, and
functional.
STRATEGY FORMULATION IN A MULTIBUSINESS
ORGANIZATION
¢ Business strategy formulation pertains to domain
direction and navigation, or how business competes in the
areas they have selected.
¢ Corporate strategy formulation refers primarily to
domain definition, or selection of business areas in which
the organization will compete.
¢ Functional strategy formulation contains the details of
how the functional areas such as marketing, operations,
finance, and research should work together to achieve the
business-level strategy.
STRATEGY IMPLEMENTATION AND CONTROL
¢ Strategy formulation results in a plan for the
organization and its various levels. On the other hand,
strategy implementation represents a pattern of decisions
and actions that are intended to carry out plan.
¢ Involves creating the functional strategies, systems,
structures, and process needed by the organization in
achieving strategic ends.
¢ Strategic Control refers to the process that leads to
adjustments in strategic direction, strategies, or the
implementation plan when necessary.
¢ They may determine that the organizational mission is
no longer appropriate or that the organizational strategies
are not leading to the desired outcome.

THE IMPORTANCE OF STRATEGIC CONTROL

Henry Mintzberg, one of the foremost theorists in the area
of strategic management, tells us that no matter how well
the organization plans its strategy, a different strategy may
emerge.
Starting with the intended or planned strategies, he related
the three types of strategies in the following manner:

1. Intended strategies that get realized; these may be

called deliberate strategies.
 2. Intended strategies that do get realized; these may be
called unrealized strategies.
3. Realized strategies that were never intended; these
may be called emergent strategies.

Strategic Restructuring – in the life of every

organization, growth will slow and some stakeholders will
began to feel dissatisfied.
Restructuring – involves a renewed emphasis on the
things an organization does well, combined with variety of
tactics to revitalize the organization and strengthen its
competitive position.

ALTERNATIVE PERSPECTIVES ON STRATEGY

DEVELOPMENT
Determinism versus Enactment – The traditional
process for developing strategy consists of analyzing the
internal and external environments of the organization to
arrive at organizational strengths, weaknesses,
opportunities, and threats (SWOT).
Ideas and Theories Regarding the Strategic
management Model
Situation Analysis - The traditional process for
developing strategy, consisting of analyzing the internal
and external environments of the organization to arrive of
organizational strengths, weaknesses, opportunities,, and
threats. The results form the basis for developing missions,
goal, and strategies.
Environmental determinism – management’s task is to
determine which strategy will best fit environmental,
technical, and human forces of a particular point in time
and then work to carry it out.
Principle of Enactment – Organizations do not have to
submit to existing forces in the environment. They can, in
part, create their environments through strategic alliances
with stakeholders, advertising, political lobbying, and a
variety of other activities.
Deliberate Strategy – Managers plan to pursue an
intended strategic course. Strategy is deliberate.
Emergent Strategy – Strategy simply emerges from a
stream of decisions. Managers learn as they go.
Stakeholder Management – The organization is viewed
from the perspective of the internal and external
constituencies that have a stake in the organization.
Stakeholder analysis is used to guide the strategy process.
Stakeholder management is central to the development of
mutually beneficial relationships and alliances with external
stakeholders.
Resource-based View – AN organization is a bundle of
resources. The most important management function is to
acquire and manage resources in such as way that the
organization achieves sustainable competitive advantages
leading to superior performance.
DELIBERATE VERSUS EMERGENT STRATEGY
FORMULATION
¢ Deliberate strategy implies that managers plan to
pursue an intended strategies course. In some cases
strategy simply emerges from a stream of decisions.
Managers learn as they go.
¢ Emergent strategy is one that was not planned or
intended. According to this perspective, managers learn
what will work through a process of trial and error.

STAKEHOLDER ANALYSIS AND MANAGEMENT

¢ The stakeholder view of strategic management
considers the organization from the perspective of the
internal and external constituencies that have a strong
interest in the organization.
¢ Stakeholder analysis involves identifying and
prioritizing key stakeholders, assessing their needs,
collecting ideas from them, and integrating this knowledge
into strategic management processes such as the
establishment strategic direction and formulation and
implementation plans.
¢ Stakeholder management includes communicating,
negotiating, contracting, and managing relationships with
stakeholders, and motivating them to0 behave in ways that
are beneficial to the organization and its other stakeholder.

THE RESOURCE-BASED VIEW OF THE FIRM

- is a business management tool used to determine the
strategic resources available to a company.
- sees companies as different collections of physical and
intangible assets and capabilities, which determine how
efficiently, how effectively a company performs its
functional activities
- Major concern in RBV is focused on the ability of the firm
to maintain a combination of resources that cannot be
possessed or built up in a similar manner by competitors.
Further such writings provide us with the base to
understand that the sustainability strength of competitive
advantage depends on the ability of competitors to use
identical or similar resources that make the same
implications on a firm’s performance.
– has its root in the work of the earliest strategic
management theorists. According to this view, an
organization is a bundle of resources, which fall into the
general categories:
- Financial resources, including all of the monetary
resources from which a firm can draw
- Physical resources, such as plant, equipment,
location, and access to raw materials
- Human resources, which pertains to the skills,
background, and training of individuals within the firm
- General organizational resources, which
includes a variety of factors that are peculiar to specific
organizations.
The key points of the theory are:

1.Identify the firm’s potential key resources.

Resources include all assets, capabilities, organizational
processes, firm attributes, information, knowledge, etc;
controlled by a firm that enable the firm to conceive of and
implement strategies that improve its efficiency and
effectiveness.
þ Resources are tradable and non-specific to the firm.
Example: Patents and trademarks,Brand-name
reputation,Installed base,Organizational culture,Workers
With specific expertise or knowledge

þ Capabilities are firm-specific and are used to

engage the resources within the firm, such as implicit
processes to transfer knowledge within the firm.

1. Evaluate whether these resources fulfill the

following criteria (referred to asVRIN):

Valuable – A resource must enable a firm to employ a

value-creating strategy, by either outperforming its
competitors or reduce its own weaknesses.
Rare- Resources and capabilities must be in short
supply to create competitive advantage and go beyond
competitive parity.
In-imitable – If a valuable resource is controlled by only
one firm it could be a source of a competitive advantage.
Non-substitutable – Even if a resource is rare, potentially
value-creating and imperfectly imitable, an equally
important aspect is lack of substitutability.
 1.Care for and protect resources that possess
these evaluations, because doing so can improve
organizational performance.

Resource-based perspective, Strengths are firm resources

and capabilities that can lead to a competitive
advantage. Weaknesses are resources and capabilities
that the firm does not possess but are necessary, resulting
in a competitive disadvantage. Opportunities are
conditions and task environments that allow a firm to take
advantage of organizational strengths, overcome
organizational weaknesses, and/or neutralize
environmental threats. Threats are conditions in the broad
and task environments that may stand in the way of
organizational competitive or the achievement of
stakeholder satisfaction.
A competitive advantage can be attained if the current
strategy is value-creating, and not currently being
implemented by present or possible future competitors.
Sustainable competitive advantage is an advantage
that is difficult to initiate by competitors and thus leads to
higher-that-average organizational performance over a long
period of time.
Threats to sustainability:

 Imitation or substitution
 Market entry
 Powerful buyers and suppliers
 Unpredictable changes in external environment
  Factors beyond a firm's control (bad luck)

ETHICS AND SOCIAL RESPONSIBILITY

Ethics – are a personal value system that helps determine
what is right or good. These values are typically associated
with a system of beliefs that supports a particular moral
code or view.
Organizational ethics – are a value system that has been
widely adopted by members of an organization.
Social responsibility contains four major
components:
1. Economic responsibilities such as the obligation to be
productive and profitable and meet the consumer needs of
society
2. A legal responsibility to achieve economic goals
within the confines of written law
3. Moral obligations to abide by unwritten codes, norms,
and values implicitly derived from society
4. Discretionary responsibilities that are volitional or
philanthropic in nature

THE CASE FOR GOING GLOBAL

– Most successful organizations find that their domestic
markets are becoming saturated or that foreign markets
offer opportunities for growth and profitability that often
are not available domestically.
FORCES FAVORING GLOBALIZATION
Saturated domestic market
Profitability of foreign markets
Falling trade barriers (i.e., EC 1992)
Newly industrialized countries (i.e., Korea, Taiwan, Spain)
leading to increasing global competition and new market
opportunities
Growing similarly of industrialized nations
Shift toward market economies (i.e., East Germany)
English becoming a universally spoken language
Globalizations of capital markets
Availability of lower-cost resources (i.e., labor) in some
foreign countries
Uniformity in technical standards
Opportunities to learn from foreign joint venture partners